Final answer:
The monetary transmission process involves the central bank influencing the economy through changes in the money supply and interest rates, which in turn affect investment, the exchange rate, and GDP. The best answer is (e): 'money supply, the interest rate, investment, and GDP'.
Step-by-step explanation:
When the central bank undertakes expansionary monetary policy, it increases the money supply, which typically lowers interest rates and stimulates borrowing for investment and consumption. This leads to a shift in aggregate demand to the right, resulting in higher price levels and, in the short run, higher real GDP. On the other hand, contractionary monetary policy leads to a decrease in the money supply, increased interest rates, less borrowing, and a leftward shift in aggregate demand, which may lead to lower prices and lower real GDP in the short run. Additionally, changes in monetary policy can influence the exchange rate, which affects net exports with some time delay. Among the multiple-choice options provided in the question, the one that best encapsulates the components of the monetary transmission process is (e): 'money supply, the interest rate, investment, and GDP'. The process affects the money demand and supply, interest rates, investment spending, and the exchange rate, and eventually translates into changes in GDP. Moreover, the monetary transmission process includes the deposit multiplier process, the response to changes by firms, the effect on exchange rates, and the expenditure change multiplier process.